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Asia’s next shift in petrochemicals to be led by China and India

While a good amount of buzz at the Asia Petrochemical Industry Conference (APIC) in Sapporo, Japan, on 18-19 May was on the coming wave of US ethylene and derivatives capacity and its potential impact, Asia itself is undergoing major structural shifts with implications for global markets.

China and India will lead the way with significant transformations, both based on traditional naphtha cracking which has found renewed competitiveness.

China CTO/MTO (coal-to-olefins, methanol-to-olefins) projects are clearly slowing down, with less than 1m tonnes/year of downstream polyethylene (PE) capacity expected in 2017, according to the ICIS team in China.

Much of the capacity planned to start up in 2017 and 2018 has been pushed back to after 2020, calling into question whether some will be built at all. These delays and cancellations are driven by a pivot towards the environment and emissions in particular, as outlined in China’s 13th five-year plan covering 2016-2020.

However, while China CTO/MTO is on the wane, there’s a renewed push to build and upgrade refineries, and construct new naphtha crackers and downstream petrochemical capacity.

“By 2021-2022, there could be about 10 new naphtha crackers on stream. In the past, these would be built by only the major companies such as PetroChina and Sinopec. But now a number of private companies are planning these projects,” said Amber Liu, senior manager at ICIS, based in Shanghai, China.

Projects have been announced since the second half of 2016 through 2017, she noted. Liu spoke at the Polyolefins Committee meeting at APIC.

One such project by Zhejiang Petroleum and Chemical (ZPC) received environmental approval in April 2017. ZPC will build a massive refining and petrochemical complex in two phases, with the first scheduled to start up in late 2018, and the second for late 2021.

The ZPC project would include 40m tonnes/year of refining capacity, 10.4m tonnes/year of aromatics, and 2.8m tonnes/year of ethylene (two crackers). It would also include two propane dehydrogenation (PDH) plants totalling 1.2m tonnes/year of propylene capacity.

China’s government will focus on developing seven refining and petrochemical bases – all along the coast, from Changxing Island, Dalian in the North, to Huizhou, Guangdong in the South.

Sinopec itself will invest yuan (CNY) 200bn ($29bn) through 2020 to build four refining and petrochemical bases – in Nanjing, Shanghai, Zenhai and Maoming-Zhanjiang, said Peter Huang, CEO of consultancy China National Chemical Information Centre (CNCIC) at the Polyolefins Committee meeting at APIC.

From the investments, Sinopec’s ethylene capacity is expected to rise a whopping 9m tonnes/year, accounting for 31% of the national total, he said.

Huang sees China ethylene capacity rising from 23m tonnes/year in 2016, to 28m tonnes/year by 2020, and then to 37m tonnes/year by 2025 with naphtha cracking accounting for 73-75% of total supply.

Meanwhile, China propylene capacity is projected to jump from 25m tonnes/year in 2016, to 35m tonnes/year by 2020 and 45m tonnes/year by 2025 with PDH making up 20% of total supply, according to CNCIC.

The resurgence of naphtha cracking as well as PDH has the potential to put China over the top in terms of self-sufficiency in downstream polypropylene (PP), where it is already exporting certain commodity grades.

John Richardson, senior Asia consultant with ICIS, pointed out that China PP self-sufficiency is projected to rise from 82% in 2016, to 92% by 2020, in a presentation at the main session at APIC.

Beyond that, a slew of new naphtha crackers by 2021-2022 could make China fully self-sufficient in PP.

Polyethylene (PE) is another story. While new naphtha crackers and downstream PE could help narrow the import gap, it is still likely to require imports.

China self-sufficiency in PE is projected to remain relatively flat, from 66% in 2016, to 65% by 2020, noted Richardson.

“No matter how you spin this story it looks like China will have a substantial [PE] deficit for in many years to come,” said Richardson.

Much of the new US PE capacity from the wave of petrochemical projects turbocharged by shale gas is targeted towards Asia, and China in particular.

The US is set to bring on 6.1m tonnes/year of new PE capacity through 2019, and a potential 11.7m tonnes/year by 2022, including Dow’s recent announcement of an additional 1m tonnes/year from a new PE plant and debottlenecks.

INDIA RISING

India is on the verge of reaching major milestones this year, with the ramp-up of Reliance Industries’ massive Jamnagar petrochemical complex anchored around a 1.5m tonne/year refinery offgas cracker within 1-2 months.

Downstream capacities are 550,000 tonnes/year of linear low density PE (LLDPE), 400,000 tonnes/year of low density PE (LDPE) and 800,000 tonnes/year of monoethylene glycol, sources close to the company said at APIC.

About a third of the PE capacity will be exported in the first year, with levels falling to zero by year three, they added.

And Reliance is nearing full operations at three of its crackers on the West coast of India using imported US ethane – at Dahej, Nagothane and Hazira, the source said. The Hazira cracker was using 100% naphtha but has been converted to a mixed feed cracker.

Other India PE additions in India have been brought online in the past several months.

ONGC Petro additions Limited (OPaL) started up its 1.1m tonne/year mixed feed cracker in Dahej in November 2016 and downstream PE lines consisting of a 360,000 tonne/year HDPE/LLDPE swing plant, and a standalone 340,000 tonne/year high density PE (HDPE) plant in the following months. Earlier in 2016, GAIL ramped up its 400,000 tonne/year HDPE/LLDPE swing plant in Pata, Uttar Pradesh.

A NEW INDIA MEGA PETROCHEMICAL PLAYER?

And talks are emerging once again about India’s government merging several of its 13 state-owned oil and gas companies which also have downstream refinery and petrochemical production.

“This could connect the refineries and allow them to be more efficient in going further downstream to petrochemicals and chemicals,” said Satyen Daga, CEO of India-based chemical distributor Daga Global Chemicals, on the sidelines of APIC.

Daga also sees India economic growth accelerating with a renewed focus on infrastructure and affordable housing investment by the Modi government, and the full implementation of the Goods and Services Tax (GST), a system that unifies the disparate tax codes of India’s 28 states into one federal tax.

“On 1 July, things will really pick up from GST implementation. By mid-September, the states won’t be allowed to collect taxes. Everyone will fall in line and 28 separate government tax departments will become one,” said Daga.

This would create huge efficiencies, or rather eliminate huge inefficiencies, in doing business in India and open up new regional markets.

“Of our 60 employees in Mumbai, only 15% are in sales and marketing. The rest handle all the different tax departments,” said Daga.

“With GST we can operate anywhere in the country – this system is much like the EU. We will be able to supply all regions, can store anywhere, and sell where the demand is,” he added.

With tax and also upcoming land reforms, Daga expects India to attract “a deluge of foreign investment”.